Financial globalisation triggers tax competition among countries and the possibility of a ‘race to the bottom'. This can chip away at the domestic tax base, and the reallocation of international capital is likely to result in the downscaling of the scope and size of redistribution under the welfare state. This column argues, however, that even a reduced welfare state can still act as a device to compensate the losers from financial globalisation losers in a Pareto-improving way.

Foreign banks can be important for trade. They can increase the availability of external finance for exporting firms and help overcome information asymmetries. This column shows that firms in emerging markets tend to export more when foreign banks are present, especially when the parent bank is headquartered in the importing country. In advanced countries, where financial markets are more developed and information is more readily available, the presence of foreign banks does not play such a role. Financial globalisation through the local presence of foreign banks can thus positively affect real integration.

In theory, financial globalisation has ambiguous effects on monetary policy. It may dampen effectiveness, but it may also amplify it through exchange rate valuation effects. This column shows evidence that the latter effect has dominated since the 1990s. Financial globalisation has increased the output effect of a tightening in monetary policy by as much as 25%. One implication is that monetary policy transmission mechanisms have changed, with the exchange rate channel gaining importance at the expense of the interest rate channel.

In the aftermath of the Global Crisis, policymakers have adopted policies to limit, or at least manage, capital inflows. This column explores episodes of capital inflows coupled with weak productivity growth, in other words, the financial resource curse. The findings show that once access to foreign capital subsides, the initial boom gives way to a recession. Both investment and employment in the manufacturing sector drop, and the larger the decrease of labour in manufacturing, the sharper the following contraction.

A lot has been said about the pros and cons of financial globalisation. But what exactly is ‘financial globalisation’? This column argues that we can’t be clear about the pros and cons of financial globalisation unless we are clear on what it actually is.

In the 2000s, emerging economies reduced their business cycle co-movement with G7 economies. Did this macroeconomic autonomy enhance the relevance of local fundamentals as drivers of emerging market returns? This column argues it did not, due to the role of benchmarked institutional investors.

In 1985, Mexico opened itself to trade and investment. In recent years, China has followed the same path with much more impressive results. But this column argues that the slow growth and crises that Mexico experienced after the initial boom should act as a warning to those optimistic about China.

Transparency in accounting standards is essential for global financial integration. Yet when the concepts are so complicated and the financial stakes so high, the debate is ripe for capture by special interests. This column suggests ways to stop this, drawing lessons from the debate over International Financial Reporting Standards.

Financial globalisation makes it easier for individuals to trade financial assets, and that should help them diversify against country-specific risks. But empirical support for improved international risk sharing is limited. This column says that there is evidence of improved international risk sharing, and it comes mostly from the convergence in rates of consumption growth among countries.

Can we blame financial globalisation for the severity of the current crisis? This column says that financial integration spread the negative banking shock that originated in the US across countries, thereby making the US better off at others’ expense.

Mortgage-backed securities have played a major role in the financial crisis and aren’t very popular as a result. This column documents macroeconomic benefits of these instruments, showing that economies with more developed markets for securitised mortgage debt share more consumption risk with other economies.

There is a vast empirical literature analysing the impact of financial openness on economic growth but far less attention has been paid to its effects on productivity growth. This is surprising given the strong evidence that productivity growth is the main driver of long-term economic growth. This column argues that financial openness in fact has a positive impact on productivity growth, although the effects are subtle.

Investing in foreign markets may seem a good strategy for reducing risk. But this column shows that financial globalisation has resulted in increased correlation amongst international asset prices, thereby eliminating the diversification opportunities it was supposed to let investors harness.

There has been a lively debate over the sustainability of global imbalances in recent years. This column argues that capital gains on international assets and liabilities are an important ingredient in any assessment of the sustainability of global imbalances.

Financial globalisation has made current account balances more sensitive to volatile variables like asset prices and interest rates. This column says that greater current account volatility may be good news if it comes in the form of countercyclical risk sharing.

A decade after the Asian financial crisis, this column summarises the lessons learned about capital account liberalisation. Many developing countries are likely to move towards greater financial openness, which is desirable – if done right.